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Outsourcers Cautious

Posted on Wednesday, Oct 29th 2008

I had covered some of the most well-known Indian IT outsourcers in my list of Top 10 Outsourcing Stocks published in September. A few of these outsourcers recently announced their quarterly results, and in this post I discuss Wipro and Satyam.

Wipro (WIT) had mixed success in its battle against the economic concerns. For the quarter, technology revenues stood at $1.11 billion, recording 7.5% growth over the quarter and 29% growth over the year. EPS of $0.12 slipped by a cent over the quarter and by two cents over the year. The Street was expecting EPS of $0.14.

The company was concerned about the recession and gave an outlook of $1.11-$1.12 billion of technology revenues, with stable or positive margins.

Wipro is still seeing some opportunity in the economic recession and realizes that outsourcing alone does not guarantee business, and that clients will now look to more transformational and consulting-backed deals. They are confident the capabilities of their global programs team and their consultants will help address these requirements. I am skeptical. In IT services they are focusing on intellectual property creation, efficiency enhancement, and delivery organization to turn around their numbers. I am skeptical about this too.

They see the slowdown as an opportunity to “spring clean” their operations and prepare for the next round of growth.

The stock is trading at $7.53 after recovering from the four-year low of $5.75 it touched earlier this month.

Satyam (SAY) also had mixed results: while performance generally exceeded analysts’ expectations, the company revised down its outlook.

Quarterly revenues stood at $652 million, representing 2% sequential and 28% annual growth. The Street was expecting revenues of $643 million. EPS of $0.39 also exceeded the market’s expectations of $0.34 and recorded 5% growth over the quarter and 30% growth over the year.

Satyam revised their revenue outlook downwards from $2.65-$2.69 billion to $2.55-$2.59 billion with EPS of $1.47-$1.50 for the year. For Q3, they are expecting revenues of $634-$652.2 million with EPS of $0.35-$0.36.

Despite this revision, the stock responded favorably. It had slipped to a two-year low of $11.00 earlier this month and has recovered significantly to trade at $15.20. It had risen 8% to close at $14.39 following the results announcement.

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